Euro hurt by mounting debt worries
LONDON: The euro fell to a fresh two-month low against a resurgent dollar on Friday as mounting speculation that Portugal will need to follow Ireland in seeking financial aid further unsettled nervous investors.
The Australian dollar tumbled after its central bank quashed hopes of an imminent rise in interest rates and the yen hit a seven-week low against the dollar, with fresh sabre-rattling by North Korea helping the U.S. currency.
Investors rattled by Ireland?s debt problems have pushed the borrowing costs of Portugal and Spain, seen as the next weakest euro zone peripheral states, to record highs.
European officials denied ?absolutely false? reports Portugal was under pressure to seek a bailout and Spain ruled out on Friday needing help to manage its finances, despite fears of a spreading euro debt crisis.
Pressure on the euro has intensified as the spiralling debt crisis threatens to ensnare bigger countries such as Spain and Italy, while a small number of experts ? mostly not market participants ? have even begun to speculate about the euro zone?s very existence.
?Peripheral issues are unlikely to go away in the short term and the euro will remain under pressure into the end of the year,? said Manuel Oliveri, currency strategist at UBS in Zurich.
The euro fell more than 1 percent on the day to $1.3217, having dropped to as low as $1.3200, its lowest since late September, and taking out option barriers at $1.3250 along the way. Traders cited reports of major Asian sovereign demand placed into $1.3200.
?Our data shows there are noticeable bond outflows from Spain and Italy, which suggests investors are becoming more unsettled,? said Simon Derrick, head of currency research at Bank of New York Mellon.
?The case looks set for further euro weakness,? he said.
Technical analysts highlighted the break of support at $1.3232, the 61.8 percent retracement of the euro?s August to November rally, adding the 200-day moving average at $1.3131 was the next key level to watch.
The euro also shed 0.7 percent against the yen and 0.8 percent to the Swiss franc as reports that senior bondholders would share the cost of rescuing Ireland?s banks weighed down on financial markets.
Rising optimism and safety boost dollar: In contrast, the safe-haven status of the dollar got a boost after North Korea said impending military exercises by South Korea and the United States were pushing the region towards war, days after it launched its heaviest bombardment of the South since the 1950-53 Korean War.
The dollar rose 0.35 percent to 83.84 yen, having briefly touched 83.97, a level last seen in early October, and rising further from a 15-year low of 80.21 yen hit at the beginning of this month.
Rising optimism on the US economy favoured the dollar, with a fall in jobless claims published on Wednesday fuelling speculation that next week?s monthly non-farm payrolls data could be strong as well, traders said.
The dollar index, which tracks the greenback?s performance against a basket of six major currencies, rose to a two-month high of 80.381.
The Australian dollar fell sharply as Reserve Bank Governor Glenn Stevens dampened any prospect of an imminent interest rate hike, saying rates were just right and the bank might not move on policy for some time.
The Aussie was down 1.8 percent to $0.9628, dropping below its 55-day moving average of $0.9777 and hitting a seven-week low of $0.9632. reuters
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